Name: Brainstorm Finance 2019: Does Crypto Have a Place in Real World Banking?
Uploaded: 2019-06-20
Duration: 13 min 31 s
Description: Brad Garlinghouse, CEO of Ripple, tries to decipher all the noise surrounded around cryptocurrency and its future potential.

Brainstorm Finance 2019: Does Crypto Have a Place in Real World Banking?

Finance

Brad Garlinghouse, CEO of Ripple, tries to decipher all the noise surrounded around cryptocurrency and its future potential. 

So I got to start off with the fact that you're wearing your your banking tie and your banking suit. Um, and, you know, you're you don't look like your Cryptocurrency CEO. You know, I'm just gonna go back. Where is your tie? So, look, I took it because I didn't think you'd have one That happens to us, and it kind of answer your question. Look, as Adam introduced Ripples a company selling software, selling technologies into banks into financial institutions. And so we think about, you know, we are selling into an audience that, oftentimes, is wearing a tie humorously, there are times when we show up for a meeting and, you know, we show up in ties and they're starting to meet with us. So they were, you know, casual Silicon Valley. And we just missed each other on the other side. So obviously, this has been a huge week for news, and I speak not of labor, although we'll get to that. But on on Monday, right after the close, you did a massive deal with MoneyGram. That stock shot up 168% on the news. Uh, ripple is private, so we don't know what happened inside your your headquarters there. I assume there was some high fives, but but x R p, which is the currency or the digital asset that you have this huge word of just sort of barely moved. So what? What was the market saying there? Well, look, I think to be frank, there is a lot of hype and, you know, to be crash. There's a lot of bullshit in the Blockchain Begged to be craft, by the way, in our pre interview, I just think there's a lot of noise and it's really, really, really hard, I think, for people looking at these ecosystems to understand, like, what is real and what is noise. I mean, look, you know, I'm sure we'll talk more about Facebook, but one of the headlines I read about that was, you know, Facebook launches Cryptocurrency. That was on CNBC. Facebook did not launch a Cryptocurrency Facebook wrote a white paper about their intent and their plans that maybe a year from now we'll see a Cryptocurrency called Libra. So I think, uh, it's hard for the industry to separate what is real. I think the MoneyGram deal was a very big deal for Ripple. I think there's even a bigger deal for the crypto markets overall, if we go back in time, as we've heard from other Panelists, I do think the original use case for Crypto it was Silk Road, right? You know. Then about two years ago, it became about speculation, right? And I think what we're seeing in 2019, what we'll see going forward is there has to be utility. There has to be a problem. You're solving leveraging these technologies, or why Why do they exist? So in the sort of geological time scale, if you will, you know we have the error of scandal, then speculation scandal with Silk Road in Mount Jackson and speculative frenzy and then winter crypto winter. And so this next one you think, is utility. But a lot of people are saying, Well, what really is the utility here? Because you sort of pooh pooh the idea of block chains in general, sort of being used for, like food security and providence and things like that. I just think there's a lot of noise. Look, I think block chains are an incredible evolution, and I think many parts of the Internet. Many parts of how transactions happen will change because of Blockchain, period. I think there are a lot of examples that I see people talk about where I ask myself, and I would ask people to ask themselves, Why doesn't the database work better? Why isn't a database more efficient? You know, a Blockchain is kind of an expensive database. It's slower than many database technologies. And I think a lot of people that use the word Blockchain as frankly catnip for investors, right they want, you know, or for marketing that they want to get, you know, uh, consulting revenue. So they talk about Blockchain. Look, we have tried to be very, very focused on solving a specific set of problems for a specific set of customers, and that is around transaction banking and liquidity management. So that today, as you've heard cross border transactions, they are slow, they're expensive, they're air prone. And that one cost, I think, gets overlooked. That people don't fundamentally understand is the way correspondent Banking Works is pre funded capital sits in accounts around the world, and you have literally $10 trillion pre funded into other banks and other financial institutions in order to facilitate. It's it's the it's the oil in the engine that allows correspondent banks working. It's sitting there, and if we can reduce the amount of oil necessary in the engine, that's incredible efficiency for the global economy. That's good for everybody. If we can route 10 trillion to a lower number that stock buybacks, that's dividends. That's working capital for lots of other purposes. So this is key because, I mean, you really see the value in this as as in many of the sort of digital assets that we talk about when we think about the sort of cryptocurrencies. But as the value is in transferring value rather than storing value and in facilitating transactions and and talk a little bit about, you know the speed because X R P versus say, the way we do this now, why is it so much faster than the normal banking transfers through Swift, for example? Well, the first time I say, I don't think there's gonna be one crypto to rule them all, and I think there are crypto I own Bitcoin. I'm long Bitcoin. I think Bitcoin is a store of value and people hold it. And so I I don't I don't think it's gonna be one use case. Uh, we think about X r p as an incredibly efficient shuttler a bridge currency, if you will. And because it's extremely fast. So, uh, in contrast, even Bitcoin, for example, we can do a transaction for about 6 10 thousands of a sense, a Bitcoin transaction today costs about $2.30 per transaction. Now, that doesn't mean Bitcoin is going to fail or something. I think Bitcoin and X R p they don't view them as competitive. X r p is extremely efficient for that payment solution. That payments problem we're solving. And Bitcoins, I think, as a store of value digital gold As you heard from Barry Silbert up here yesterday, you know, uh, today gold is worth many trillions of dollars and Bitcoins worth you know something around 200 billion. So there are two protocols to, uh technologies that that ripple uses. One is that sells to banks. Basically, X current, which was the sort of Fiat currency that uses this, uses a bridge currency essentially, but it uses Fiat currency as as as the sort of Bridge. The new one is X Rapid, which is uses X r p. And the MoneyGram deal is important because it really focuses on MoneyGram is going to use x r p is going to use this digital asset. Is that exclusive or No, it's not an exclusive deal. Uh, certainly. I mean, look, we already work with lots of other money service providers, like none as large as MoneyGram. We are doing some tests, as from Western Union described yesterday. I've done some tests with them, but look, you know, we think fundamentally, uh, the entry point for us has been Let's go sell what we call X current, and this is a point to point Fiat Fiat, Bank of Cliff, the Bank of Brad. You do not want to leave that to the Bank of Cliff. Real time debit and credits so swift today, you know there's a series of hops, things go through, it is slow, it is expensive, and this is real time. But it's Fiat Fiat. It is necessary for that to work, to have that pre funded capital parked in the Bank of Cliff in the Bank of Brad. So you're right. I don't trust the Bank of Cliff. I don't want your money there. And so yeah, you have to say that, actually. All right, What ex rapid allows is for me to shuttle value in real time from, say, British pounds to Philippine peso in real time. And I have to pre fund into the Philippine peso. So getting back to where we are in this moment of time in this sort of crypto geological timescale, um, you know, the liberal deal. A lot of what we heard yesterday was that it's an inflection point that this was a sort of when you look at the players involved in it. It seemed to legitimize this idea of this sort of very big idea that's been around for a while. Uh, your MoneyGram deal where they are focusing on using this digital asset, X r p is another sort of legitimizing idea. Um, So what are we at the point? Because when I look at the banking clients that actually use X r p actually, that particular technology the ex rapid, they're not the household names. Yeah. Yeah. Look, I do think the Facebook announcement a whole bunch of examples. You're at a nascent stage of this industry. And you have, as we described earlier, gone from kind of, you know, illicit use cases to speculation to utility. You know, the ex rapid product. We've now had a market for about eight months. We've announced, you know, some between 10 and 15 production customers taking advantage of that product. You know, for a Silicon Valley startup to be able to go from, you know, a launch of a new product to 10 to 15 customers. Actually, pretty thrilled. Uh, but, you know, I think for a lot of banks that have a lot of liquidity parked around the world, they're evaluating. Okay, What does that mean? I was talking to the CEO of one of the largest banks in Canada and they were exiting their correspondent relationship in Brazil. It's expensive for them to hold Brazilian rials. And they're like, Look, we don't have enough demand. So now we're going to use a correspondent bank now if they could use X rapid into Brazil, they don't have to have the pre funded money. They have the expense and they can still solve their customers problem that need to do business in Brazil. So I think these are all examples of it is a journey. I think that, you know, it is nations. I will also say that I'm gonna send a case of champagne to David Marcus, the guy who runs the, uh The reason is this week this week will probably be the best week of signed contracts at Ripple ever. It has been a massive call to action because, you know, again, Facebook kind of came out and said we don't need Western Union anymore. Well, if you're a bank, if your Western union, you kind of Uh huh, that's interesting. And I think the banks realize that if Facebook is going to be a competitor in this space, they can't depend upon a technology like swift to compete in the marketplace. So I want to go to questions in just a second. So please think of that and, uh, hold up your hand and we'll get a paddle to, but, you know, so the banking legitimacy questions. So the Basel Commission just came out with a statement a couple a couple of months ago, um, in which they talked about a lot of the risk inherent in these These new Cryptocurrencies. And and it seemed like even there was a milestone that they talked about it. The message itself was pretty skeptical. It seems to me when my reaction to a lot of those statements is, you know, there are so many things lumped into one bucket when you talk about crypto yesterday, you heard up here on stage, you know, some advocacy for tokens, crypto, that is anonymous, that focuses on being anonymous, right? I don't think that's helpful to the industry, right? You know, we live in a world of governments. We live in a world of, you know, rules and regulations. They matter. And one of the very important bedrock regulatory frameworks around banking is K. Y. C. Know your customer anonymous transactions are not going to fly. And so I you know, when I see some basil commission come out and say something broad about crypto generally like Wait a minute. Let's understand how x R P is used. Let's understand what ripple is enabling. There are zero transactions enabled by ripple that aren't K Y c. So let's see if we have a question here. Anybody questions well, so this brings up the question. Do we have one. Oh, yeah. Right here. Thank you. When you said that is the best time is the best week for ripple contracts ever. Was that a factual statement? Are you just hoping No, that's a factual statement that the Facebook announcement has absolutely catalyzed contract activity. So we may have been talking to a bank. A payment provider for, you know, six weeks, six months about a contract. This has been a call to action. There's no question. Uh, you know, I was texting with our head of sales guy named John Mitchell. He flies around the world more than anybody I've ever met. And, you know, this is going to be a record week for Ripple. So, to my understand, the G 20 the meeting of the Global Heads of States Zeno Sock at the end of the month. To my understanding, the issues of digital assets are not on the agenda. What? What? What would you want them to address first, if you have to do one quick, uh, one quick topic for the lack of regulatory clarity is definitely holding back the industry. I think that I grew up in the dot com one point oh, era. And the fact that the U. S. Government provided some frameworks for how they were looking at the Internet, then health, investment and help clarity such that lots of companies could invest dollars there or whatever currency. I think the lack of that in the US the lack of that in some markets around the world is holding things back. You don't see the U S. Leading here? Uh, the UK, Japan, Singapore. These are central banks and regulatory governments that are there being proactive. And they're recognizing that not all crypto is the same, right? And just because some enable anonymous transactions doesn't mean we should paint them all with one broad brush. So regulatory compliance and regulatory ambiguous world. Okay. Thank you very much, Brad Garlinghouse. Thank you. That was great. Yeah.